Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue

A petition for review with the Court of Tax Appeals to dispute a tax assessment is premature and deprives the court of jurisdiction if filed before the Commissioner of Internal Revenue or his duly authorized representative has denied the protest in whole or in part, or before the lapse of the 180-day period within which the Commissioner or his representative must act on the protest. The taxpayer may not circumvent these procedural requisites by filing an "appeal" with the Commissioner from the inaction of his authorized representative, as Section 228 of the National Internal Revenue Code provides no such remedy.

PAGCOR, a government-owned and controlled corporation created under Presidential Decree No. 1869, operates casinos and gaming establishments. It provides a car plan program to qualified officers, wherein 60% of the cost is shouldered by PAGCOR and 40% by the officer. In 2007, the Bureau of Internal Revenue conducted an investigation of PAGCOR's 2004 internal revenue taxes and subsequently issued a Final Assessment Notice on 14 January 2008 for alleged deficiency fringe benefits tax amounting to P48,589,507.65.

• Nature of PAGCOR: Philippine Amusement and Gaming Corporation is a government-owned and controlled corporation existing under Presidential Decree No. 1869, created to regulate, establish, and operate clubs and casinos for amusement and recreation.
• The Car Plan Program: PAGCOR provides a car plan program to qualified officers where 60% of the availment is shouldered by PAGCOR and 40% by the officer, payable over five years.
• The Investigation and Assessment: On 10 October 2007, PAGCOR received a Post Reporting Notice dated 28 September 2007 from BIR Regional Director Alfredo Misajon of Revenue Region 6, indicating deficiencies in Value Added Tax, Withholding Tax on VAT, Expanded Withholding Tax, and Fringe Benefits Tax for taxable year 2004. The BIR subsequently abandoned claims for VAT, WTV, and EWT following the ruling in Commissioner of Internal Revenue v. Acesite Hotel Corporation, but maintained the assessment for deficiency FBT.
• Receipt of FAN: On 17 January 2008, PAGCOR received the Final Assessment Notice dated 14 January 2008 demanding payment of P48,589,507.65 for deficiency FBT for 2004.
• Administrative Protest: On 24 January 2008, PAGCOR filed a protest with the Regional Director. On 14 August 2008, PAGCOR elevated its protest to the Commissioner of Internal Revenue, citing lack of action on the Regional Director's part.
• BIR Responses: On 23 September 2008, PAGCOR was informed that the Legal Division of Revenue Region No. 6 sustained the imposition of FBT and that the protest was forwarded to the Assessment Division. On 19 November 2008, PAGCOR received a letter stating its protest was referred to Revenue District Office No. 33.
• Petition before CTA: On 11 March 2009, PAGCOR filed a Petition for Review with the CTA First Division alleging respondents' inaction.
• Commissioner's Denial: Only on 18 July 2011 did the Commissioner of Internal Revenue send a letter to PAGCOR demanding settlement of the tax liability including surcharge and interest, and threatening issuance of Warrants of Distraint and/or Levy and Garnishment.

• Timeliness of Appeal: PAGCOR maintained that its protest before the Commissioner of Internal Revenue on 14 August 2008 started a new period from which to determine the last day to file its petition before the Court of Tax Appeals, rendering its 11 March 2009 filing timely.
• Substantive Exemption: PAGCOR argued that it is exempt from fringe benefits tax under its charter, Presidential Decree No. 1869, and that the car plan provided to officers inured to the benefit of PAGCOR and was necessary in the conduct of its business.
• Liability for Basic Tax Only: Assuming liability for FBT, PAGCOR contended it should only be liable for the basic tax excluding surcharge and interest.

• Procedural Defect: Respondents countered that the petition was properly dismissed as filed beyond the periods provided by law. The protest to the Regional Director having been filed on 24 January 2008, the 180-day period expired on 22 July 2008, and the 30-day period to appeal to the CTA expired on 21 August 2008. The filing on 11 March 2009 was clearly out of time.
• No New Period: Respondents argued that elevating the protest to the Commissioner did not create a new period for filing an appeal with the CTA.

• Premature Filing: Whether the Court of Tax Appeals had jurisdiction over PAGCOR's petition for review filed on 11 March 2009 when neither the Regional Director nor the Commissioner of Internal Revenue had rendered a decision on the protest.
• Substantive Exemption: Whether PAGCOR is exempt from fringe benefits tax under its charter.

• Premature Filing: The petition was prematurely filed, not merely late. Under Section 228 of the National Internal Revenue Code and Section 3.1.5 of Revenue Regulations No. 12-99, a taxpayer has only three options: (1) appeal to the CTA within 30 days from receipt of denial by the CIR or his authorized representative; (2) appeal to the CIR within 30 days from receipt of denial by the CIR's authorized representative; or (3) appeal to the CTA within 30 days from the lapse of 180 days if the CIR or his authorized representative fails to act. There is no provision for an appeal to the CIR from the failure to act by his authorized representative. Because PAGCOR filed its petition on 11 March 2009 before receiving any denial from either the Regional Director or the Commissioner, and before the lapse of the 180-day period from its submission to the Regional Director, no cause of action had accrued, depriving the CTA of jurisdiction.
• Substantive Issue: The Court did not reach the substantive issue regarding PAGCOR's tax exemption because the procedural defect was fatal.

• Three-Option Rule in Tax Protests — Section 228 of the NIRC and RR 12-99 provide a taxpayer protesting an assessment with exactly three exclusive remedies: (1) if the protest is denied by the CIR or his authorized representative, appeal to the CTA within 30 days from receipt of denial; (2) if the protest is denied by the CIR's authorized representative, appeal to the CIR within 30 days from receipt of denial; (3) if the CIR or his authorized representative fails to act within 180 days from submission of documents, appeal to the CTA within 30 days from the lapse of that period. The law does not recognize a fourth option of appealing to the CIR from the inaction of his authorized representative.
• Prematurity as Jurisdictional Defect — A petition filed with the Court of Tax Appeals before the accrual of a cause of action is premature and deprives the court of jurisdiction. A cause of action in tax protest cases accrues only upon denial of the protest by the Commissioner or his authorized representative, or upon the lapse of the 180-day period without action. A prematurely brought action cannot be cured by amendment or supplemental pleading alleging the accrual of a cause of action while the case is pending.

• "A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options: 1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest. 2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest. 3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period."
• "There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative."
• "It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied by an amended or supplemental pleading alleging the existence or accrual of a cause of action while the case is pending. Such an action is prematurely brought and is, therefore, a groundless suit, which should be dismissed by the court upon proper motion seasonably filed by the defendant."

• Surigao Mine Exploration Co., Inc. v. Harris, 68 Phil. 113 (1939) — Cited for the principle that a complaint whose cause of action has not yet accrued cannot be cured by amendment or supplemental pleading alleging the accrual of a cause of action while the case is pending.
• Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, 12 February 2013 — Cited for the application of the verba legis doctrine.
• Commissioner of Internal Revenue v. First Express Pawnshop Co., Inc., 607 Phil. 227 (2009) — Cited regarding the 180-day period for the Commissioner to act on a protest.

• Section 228, National Internal Revenue Code of 1997 — Governs the procedure for protesting assessments, including the 30-day period to file a protest, the 60-day period to submit documents, the 180-day period for the Commissioner to decide, and the 30-day period to appeal to the CTA.
• Section 3.1.5, Revenue Regulations No. 12-99 — Implements Section 228 of the NIRC, detailing the three options available to a taxpayer after filing a protest.

Antonio T. Carpio, Arturo D. Brion, Mariano C. Del Castillo, Jose Catral Mendoza, Marvic M.V.F. Leonen.